Published 5:01 pm, Thursday, December 19, 2013

On Cyber Monday this month, a big day for online shopping, the Supreme Court quietly cleared the way for states to begin collecting $13 billion in sales taxes on Internet purchases each year. That development creates an important opening for hard-pressed states to update their sales-tax codes.

Online retailers have relied on a 1992 Supreme Court ruling to avoid sales-tax collection in states where they have no physical presence. That has given them an unfair advantage over brick-and-mortar retailers and has deprived states of billions in sales tax revenue.

In 2008, New York fought back. It passed a law requiring sales tax collection by online retailers that use New York-based affiliates. Online retailers challenged it, but the Supreme Court declined to hear the case, upholding the statute and similar laws in 13 other states.

State tax revenues have only barely returned to pre-recession levels, which is not nearly enough to meet today's needs. Meanwhile, federal aid to states is falling.

Taxing online purchases is only one way to tax Internet commerce. Twenty-three states lose $300 million a year because they do not tax downloads of music, movies, games, books and other items. Forty-two states lose $350 million a year because they let online travel companies charge sales taxes based on wholesale rates, not prices charged to customers.

Internet sales taxes tend to spare low-income consumers because they shop less online. Broadened sales taxes could be paired with more progressive state income taxes to ensure the burden is widely shared.

Ideally, Congress would pass a law to ensure uniform and comprehensive taxation of Internet sales. Until then, states will have to act on their own.